In this episode of Women’s Money Wisdom, Melissa Fradenburg explores the intricate dynamics of managing finances within relationships. With a focus on the importance of financial transparency and communication, Fradenburg draws from her own experiences to shed light on the complexities couples face when merging their financial lives.
Tune in to gain valuable insights on managing finances within relationships, fostering open communication, and planning for a secure financial future together.
Listen and learn:
Resources mentioned in this episode:
Links are being provided for information purposes only. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Pearl Planning cannot guarantee that the information herein is accurate, complete, or timely. Pearl Planning makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Pearl Planning financial advisors do not render advice on tax matters. You should discuss any tax matters with the appropriate professional.
In this episode of Women’s Money Wisdom, Melissa Fradenburg explores the intricate dynamics of managing finances within relationships. With a focus on the importance of financial transparency and communication, Fradenburg draws from her own experiences to shed light on the complexities couples face when merging their financial lives.
Tune in to gain valuable insights on managing finances within relationships, fostering open communication, and planning for a secure financial future together.
Listen and learn:
Resources mentioned in this episode:
Links are being provided for information purposes only. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Pearl Planning cannot guarantee that the information herein is accurate, complete, or timely. Pearl Planning makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Pearl Planning financial advisors do not render advice on tax matters. You should discuss any tax matters with the appropriate professional.
Welcome to the Women's Money Wisdom Podcast. I'm Melissa Joy, a certified financial planner and founder of Pearl Planning. I'm Melissa Freidenberg, financial advisor. We dive deep into topics like work-life balance, financial planning, personal growth and the intricacies of the sandwich generation. Tune in for money conversations that every woman needs to have. Hello and welcome to the Women's Money Wisdom Podcast. This is Melissa Freidenberg in the Gross Point office, and this week is Valentine's Day, so I thought we should probably do an episode.
Melissa Fradenburg:Money and relationship and couples and really thinking, one of the biggest things that comes up as a financial advisor when I meet with clients, whether I'm meeting with both husband and wife or well, I guess I should take both partners in a relationship or one I get the question all the time how should we be dividing up the money as far as bank accounts, investments, all of those things. So obviously one of the biggest is just the household monthly spending what's coming in, what's going out. Start with that, tackle that, because the investments are a whole other animal and a lot of times the IRS dictates how things are titled, labeled, et cetera. So, as far as the day-to-day household finances, the good news is there is not a right or wrong way across the board, which is what I think a lot of people are asking when they're asking me am I doing it the right way? It is highly individualized for you as a couple and what works for you. So in this episode I'm going to go through a couple of the ways that people divide the household finances what I've seen work well and why, and I'll share a little bit of my own personal experience, both currently as well as when I was a stay-at-home mom, because that really changes the way that you divide the assets when there's one person working and one person spending in my case, how I felt anyway. So the cleanest way, I would say, as far as splitting up the bills, if it works for you and your spouse, is for everyone to deposit into a joint account and have all expenses either coming out of a joint account or going on to a joint credit card and being paid off at the end of the month. It's the easiest way to be able to see what's coming in, what's going out, which, in financial planning, is where we start right, and it is amazing to me just how many people don't know, whether they're married or single, what the total amount is going out every month. And sometimes, when I ask people, they'll rattle off a number real quick and I'm like, wow, they really know they must have a spreadsheet going, and as I get to work with them a little bit more, I realized that it was, I guess, an estimation. So, again, the cleanest way in order to track those things is to have everything combined.
Melissa Fradenburg:Logistically, though, couples sometimes cohabitate before they're married, or maybe one person moves into somebody else's apartment or home, so things get a little bit mixed up and you get one person buying groceries, the other person paying the mortgage, and then, once things progress and you get engaged or get married, you just continue on that way that you are going. Now, I love when women are fiercely independent. Oftentimes, though, I feel like this independence causes them to say okay, we're going to keep our finances separate, which can work for some people, especially if one person makes a lot more than someone else in the relationship. This can be a way to divide the household finances. I have seen it where people say okay, you know, if I make 60% of the income and you make 40, I'm going to pay 60% of the household bills and you're going to pay 40% of the household bills If that works for you great.
Melissa Fradenburg:Personally, I don't love that because I really think that, again, having one account where all the bills are coming out of makes the most sense and really, when you're getting into the financial things, if you are committed, if you are in a long-term relationship and you are building the thing together. And I guess I should say I should clarify that I didn't always feel this way when I was younger, but the closer I get to retirement, the more I think about retirement with my husband. What are we going to do? What are we going to spend money on? Where are we going to live? And it really, after 17 years of marriage, almost it is a we thing. However, when we first got married, I was very much like a lot of these younger women. Which is mine, my income coming in and I'm going to take care of my own bills and I'm going to pay for the things. So I get that. I will say, however you decide to divide the bills, that it probably makes sense to have one account together If you would like, your income going into your own account and putting either the same amount, equal amounts into this joint account that pays the bills, or have it again like 6040, based on who makes what. Do keep that separate account but have a joint account together.
Melissa Fradenburg:Exceptions to money that going into the joint account Even if you are in the happiest of marriages, if you are to inherit money from a family member, be very careful about dumping that money into a joint account with you and your partner. Again, it has nothing. It is not a reflection on whether you're in a happy marriage or not in your mind. That money, once commingled, becomes marital assets and all too often in the case of divorce we have people that were very happily married, or so they thought, who then become not happily married and once that toothpaste is out of the tube it's really hard to get it back in. So that would be the exception to that. Easiest way is to have one account as a couple, so outside of inherited assets, it does make sense. Now, this may be an unpopular opinion here.
Melissa Fradenburg:I am a huge fan, regardless of if it's a dual income partnership, that each person does have their own account for spending, whether it's a credit card or a separate bank account with a debit card, some place where you can have autonomous spending. I don't actually have that at the moment and I will say after again 17 years. It's like my husband knows my spending patterns and he knows my weaknesses. He knows, when he sees a box coming from home, goods that like yes, I probably bought another rug for the entryway, throw, pillow, blanket for the couch, and he's just sort of given in to like even fighting on those things. And same thing, like I know when he's gonna go to a golf outing that he's bringing cash to like I don't know, bet on each other. I don't know how it works. But my point is like we have just come to an agreement that we know what each other spends money on and we are on the same page on our overall finances.
Melissa Fradenburg:And it's not about having something to hide, but I will say, figuring out what that amount is, whether it's what you have left over from your income after you put money into a joint account to spend on bills, or if it's a decided upon amount every month that you have for splurging on things that bring you joy, especially in the beginning of a relationship where maybe you have differences on those things that you're spending I don't wanna say differences, disagreements Having the ability to have some autonome spending, especially in the beginning of a relationship where one or both of you is used to being able to spend on things without being judged is so important to kind of ease that friction. So whether it's getting your nails done every two weeks or maybe it's spending money on your hair that like feels excessive to your partner, you should be able to do those things without being judged. And if you are which I hope you are talking about budgeting and how much you have to spend on those types of things I hope that you've opened communication on what those things are that bring you joy. But realistically, all too often I see that couples don't. So if you are a couple who one person spending, while not excessive, bothers, you think about that and think about are you judging your partner for what they're spending money on? You can judge the amount again if it is overspending, if it is outside of what you've agreed upon can be spent for those things on a monthly basis, but as far as what they're spent on, maybe that makes sense then to really just have separate accounts where you're not judging and I say that again, I'm in a marriage of 17 years almost, and I'm sure my husband still judges when he looks at the credit card, as do I sometimes, on the things he spends money on. But we have come to a point in our relationship where it's fine we agree to disagree on certain things and as long as, again, we know what we spend every month and what we have coming in and that is the important thing that we are on agreement there.
Melissa Fradenburg:Now, when I first started the episode, I talked a little bit about investments and that's kind of a whole different can of worms. What I wanna say here is just like, with monthly spending, you should be on the same page with how much, as a couple, you're putting away for the future, whether it's for the purchase of a new home or whether it's a vacation fund, or whether it is for retirement, which is a big one that a lot of people save for and should be saving for. Have the conversation, whether it's over a glass of wine and dinner, whether it is just a Sunday afternoon once a month where you sit down and kind of go through the finances together. Have that conversation, get on the same page, just like it shouldn't matter if one person is working or staying home with kids or in grad school. Both people get a say in the overall saving for and deciding what these goals are.
Melissa Fradenburg:I'm going to link in the show notes an episode that Melissa Joy did on setting financial goals because I think it's such an important part of the conversation and so often I see where one person in the relationship really takes care of the finances and makes those decisions without kind of putting meat to those goals Like what is it we're saving for? And it's really hard when one person in the relationship feels this amount is being dictated to them for a savings goal that maybe they aren't on the same page with and they need to get on the same page. It doesn't mean that, you know, oftentimes I'll see where one person in the relationship is the spender and they want to have more monthly cash flow, or the other person is the saver and they really want to put more away. So you have to find a happy medium in the middle. But again, the communication of what is this for and what is it that we really want our life to look like. You're probably sick of hearing this, but my favorite thing to say to people when I sit down is what do you want to be, have and do in five, 10, 20 years from now? Sit down as a couple and really think about that Now the next thing to figure out after you figure out that amount that you can put away, before you even touch it every month as far as your cash flow is what vehicle is it going to be saved in?
Melissa Fradenburg:Now, if it's for retirement and you have a retirement account through work, especially if there is matching there, a 401k is most common. If you are in the public sector, you may have a 403b, but again, a retirement plan through work, that is definitely something you at least want to put money away for retirement there, up to the amount that's being matched by your company, and even if there isn't a company match, it is one of the best vehicles to put money away, tax deferred for retirement. Now, if this is not money earmarked for retirement, you have more flexibility on what vehicle, and I will link another episode that can help with that, determining where to put money away. But what I do want to say is this is one of the biggest mistakes I made with my own finances, which is I did not realize that when I was a stay-at-home mom, that I could still put money away from my retirement in an IRA. There is what's called a spousal IRA. It is an IRS term. It is not separate from a regular IRA.
Melissa Fradenburg:So if you have a traditional IRA or a Roth IRA open, you can, depending on income limits with your spouse, put money away. It could be tax deferred. It will be tax deferred. It could be. If you're eligible for a Roth, it would be post-tax money and it would be tax-free in retirement. If you are not eligible due to income and I will link in the show notes what that is for 2024, those income requirements for Roth versus traditional and for income to determine if a traditional IRA contribution will be deductible, however, it will grow tax-deferred and you are able, based on your age, will dictate the amount. Again, in the show notes there will be a link that shows you what you can put away, based on your income and your age, into both a traditional or a Roth IRA.
Melissa Fradenburg:The important thing I want to get through here is if you are non-working spouse and you do not have access to, obviously, a retirement plan through your employer, you still can contribute to an IRA during those non-working years based on a spousal IRA concept. So I do think that's really important and I think that was one of the hardest things for me to grasp is, when I was done, staying home with the kids and I went back to work, I again started to save for retirement. But those years where I missed out, I really, to this day, I still have a lot less in retirement assets than my husband who worked for those eight years when I stayed home. And it doesn't bother me, especially because I work with a lot of clients and divorce and I realize if something were to happen with our marriage that those retirement assets would be divided equitably. So the years where I didn't contribute would not necessarily hurt me in that sense. And again, we're not getting divorced as far as I know. So we will be planning for retirement together at this point. And so those retirement assets that he saved while we were married and I stayed home with the kids again will help fund my retirement.
Melissa Fradenburg:And it is oftentimes, with these things, psychological. So I always felt like am I retired? Am I ever going to go back to work? What am I going to be when I grow up again? And that was a big hang up for me. I wish that I would have just relaxed and enjoyed that time at the time with my kids and not worried about that. So here I am. I have a career that I love. I'm saving for retirement again, I'm earning income on my own again, and so I really stressed about that when I, I guess, should say, unnecessarily stressed about that. So back to overall kind of how you divide the assets when it comes to retirement assets.
Melissa Fradenburg:A lot of times retirement accounts can only be titled in the name of an individual. In fact, an IRA stands for individual retirement account. So very clear in the terminology there you cannot be a joint owner of a retirement account, either your husband's through work or if he has an IRA. However, outside of retirement savings, you can have a joint taxable investment account and I highly recommend that after you have either maxed out retirement options or for those other goals that maybe will happen before your 59 and a half, when you can take money from retirement accounts with some exceptions, of course, that is a great place a taxable investment account. So what does that look like? Well, again, all too often I want to say I see couples who have a taxable investment account where just one person kind of handles the investments, and that's okay if they're going to be kind of the go between between a financial advisor or even if they're managing it through an online brokerage on their own. But I really want both people in the relationship to know how much is in there, how much they're putting away on a monthly basis, what that money is earmarked for, so the probable thing that these funds will pay for, and also how it's being managed, how it's invested.
Melissa Fradenburg:Now I get pushed back here. I get people saying Melissa, I really don't know anything about investing, I'm not good at it. Well, guess what? Maybe you just need to make sure that your spouse, who is managing it, knows what they're doing and if they're good at it, of course, being a professional, I always recommend that you use somebody to help you with those accounts.
Melissa Fradenburg:However, it's not always the case. Some people like doing it. I cannot stress enough that you sit down at least quarterly, preferably monthly, and go through what you have, what it's returned, what the risk of the portfolio is, and really just be on the same page. And I say this because it really does help. It helps when both people are on the same page and know and no one feels like they're in the dark. Because I do feel that sometimes it becomes a control thing where one person manages it and then they get to dictate how much is put away how much is spent, and or there's resentment there. Resentment because maybe one person feels like they're saving too much money, like they can't do the things they wanna do monthly, or the other, the saver, feels that the spender is spending too much money and again, if it's not being talked about, it could be building resentment.
Melissa Fradenburg:So key takeaways on this episode are there's no wrong way. Whatever works for you as a couple and it may take trial and error to figure out what works for you as a couple as far as one account and each of you have separate accounts where your paycheck goes into, or separate accounts where a certain amount from your joint account goes into every month for that autonomous spending. Or maybe you just are like me, where you're just like okay, we're just gonna do one account because it's easier and we have good communication and we're on the same page and none of those are wrong. Some are easier to manage as a couple. But figure out what works for you and what makes both people feel seen and heard and on the same page. And again, with that comes not just the cash flow and the savings account and the investment account, if there's a joint account, but also retirement accounts. How much are we putting away? Is it gonna be enough? What are we saving for? What are the goals? Really, sit down and go through that with your partner and be on the same page.
Melissa Fradenburg:I hope that you have a wonderful Valentine's Day and, by the way, valentine's Day may not be the most romantic time to start having a financial conversation together. So, while this episode is airing the week of Valentine's Day, maybe wait for a different day. Set a date and say let's sit down, get organized and if you need help, if you wanna sit down with somebody who can help you and your partner get on the same page, I highly recommend finding a financial planner. That's what we do at Pearl Planning and I will link that below. If you are looking for somebody to help you with this, we would be happy to set up an intro meeting and get to know you.
Melissa Fradenburg:Thank you for listening and I hope you're having a great day. Thank you for listening to the Women's Money Wisdom podcast. If you found value in our conversations, please take a moment to like, follow and subscribe wherever you're tuning in from. It helps us continue to bring these valuable insights every week. Head over to Women's Money Wisdom Podcast. I'm gonna be back with another video that will help you get to know your partner, and help you get to know your partner and find some other great guides every week. Head over to women'smoneywisdomcom. There you'll find tools, tips and a supportive community.